Will Oil Reach $200?
July 8, 2008
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It was not long ago that the press was filled with stories predicting oil at $100 per barrel. Soon after the same stories appeared again but looking at $150 per barrel. Based on current trends, and analysis of the global supply and demand, is $200 oil far off?
While politicians love to blame the high prices on speculators, additional analysis shows that speculators have a rather small impact on oil prices. Speculators trade back and forth based on paper assets, and never actually take possession of barrels of the oil. In fact, the derivatives market can provide much need reliability in oil prices as buyers and sellers are able to lock in a price ahead of time and remove any uncertainty.
The underlying reason behind the high prices is the ongoing changes in the supply and demand. Supply of the black stuff has been relatively constant for the past five years, during which time the demand has steadily increased, largely due to the booming emerging economies.
For a while, biofuels were seen as a way to supplement the supply, but with the world food crisis giving a lot of negative press to the use of crops as food instead of fuel, this cannot be relied upon.
A recent study released by the International Energy Agency said that the “oil market will remain tight during the next five years as production from non-OPEC countries stalls and demand growth remains relatively strong.”
Unfortunately, this means that the rising oil prices show no signs of letting up and that oil at $200 a barrel is likely within the next 18 months.
As bad as this is for drivers who are feeling the pinch at the pumps, this is great news for the fight against global warming. The reality is that high oil prices have done far more to influence behavior that the impending crisis caused by global warming. As long as oil prices stay high, alternative energy sources will become viable much sooner and people will start to make all the small changes in their daily lives to cut their own carbon footprint.
While it may not seem like, oil at $200 is truly a blessing.
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